Tricks and traps of credit card balance transfers

Tricks and traps of credit card balance transfers

CANSTAR CANNEX releases credit card star ratings.

Trimming a New Year debt hangover may be fruitless if you ignore fundamental rules of engagement with a credit card balance transfer offer, said financial research company CANSTAR CANNEX.

If ever there.s a time when a credit card balance hits home, it.s Christmas.

¡°If you.re like the majority, your card balance will be bloated and looking distinctly unwell after too much partying during the festive season, ¡°CANSTAR CANNEX Research Manager, Chris Groth said.

¡°Advertised credit card balance transfer offers can look very attractive at these times, particularly if you are constantly paying off your credit card but barely putting a dint in it because the monthly interest rate is too high.¡±

According to CANSTAR CANNEX, it.s not just credit card balances that can be transferred. Many banks are also willing to let customers transfer hire purchase (credit contract) balances from the likes of Q Card, GE Creditline, Farmers Card and more.
¡°There.s no doubt the right balance transfer for your individual situation is a step in the right direction towards pruning personal debt but there are a few things that could bring you undone if you.re not wary,¡± Mr Groth said.

The four main things to avoid in balance transfer deals are:

1. Spending on the card

Most lenders apply payments to the outstanding balance that has been transferred first, rather than the new spending, which is attracting a higher interest rate. They way around this for clever consumers is to refrain from spending any money on the new card and slowly pay off the balance taking advantage of the low rate. Only after the balance is paid off in full should you spend on the card.

2. High revert rates

After the advertised number of months . these vary from 6 to 12 months to the life of the balance . all unpaid balances are transferred to the standard interest rate. It.s important to know what this .revert. rate is, as it can be as low as 12.9% or as high as 22.20%. As a general rule, before switching credit cards, consumers should know the promotional rate, when it expires and the rate they will pay after expiration.

3. No interest-free days

There are no loyalty points or interest-free days on the balance transferred. Interest is charged from day one on balance transfers.

4. Different Intro Rates

When transferring from more than one card . such as a Q Card and a Visa card to one new credit card, there may be different introductory rates. The fine print in some cards say that where you.ve made more than one balance transfer, payments may be allocated to the balance transfer with the lowest interest rate first.

One final tip, according to CANSTAR CANNEX, is to look out for useful balance transfer calculators on banking websites.

¡°What.s even better is a balance transfer calculator that includes the introductory interest rate and term, the normal credit card rate, the annual fee and any balance transfer fee that may be applicable,¡± Mr Groth said.

CANSTAR CANNEX researched 67 credit cards offered by 11 lenders in its latest credit cards star ratings report.

The report makes a useful shortlist of cards, according to four spending types . habitual, occasional, everyday and big spender.

¡°Matching your spending and repayment behaviour with the right card is the first step towards a successful relationship,¡± Mr Groth said.

The complete credit card star ratings report and results are available for consumers on www.canstarcannex.co.nz

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